The Basics of Excess and How It Works

What is an excess related to an insurance policy? It’s the amount you, as a short-term rental manager, will have to pay out-of-pocket before your insurance carrier starts covering your expenses. Regardless of the coverage amount, you must remit the excess before it kicks in.

This post examines the excess definition more closely. You’ll also learn how an excess is set, how it works, and what coverages it may be used for.

What Is an Excess?

Short-term rental policies are very similar to regular homeowner insurance policies. There are a few coverages unique to rental property managers, though, such as the following: 

• Damage to property contents and property structure caused by guests
• Property Manager and Homeowner liability for guest bodily injury
• Property Manager and Homeowner liability for property damage as a result of a guest stay

The excess is how much the manager must pay against property damages before the insurer takes over payments. A policyholder generally does not pay the excess to the insurance carrier. Instead, it’s subtracted from the sum the insurance carrier will pay. The manager then remits the cash to the contractors who will repair the damage.

There are two primary kinds of insurance excess for short-term rental properties. A cash-amount excess is set at a specific sum for out-of-pocket expenses. Alternatively, the carrier may set a percentage-based excess that’s calculated using a percentage of the property’s insured value. 

Some policies may have more than one excess. For example, if one’s property is on the coastline, the insurer may impose a second excess for certain claims like weather damage or floods. It’s important to be clear on what excess covers different forms of damage.

Excess for short-term rental properties are on a per-claim basis, not annual maximums. If a property suffers damages from separate incidents, each claim will have its own excess.

Short-term rental property managers may have to take out separate policies for major natural disasters like floods or earthquakes. Coverage for these events may be different in certain areas based on how susceptible they are to particular conditions. Each policy will have its own excess definition.

How Excess Affects Insurance Premiums

As a rule of thumb, the more you can afford to pay a higher excess, the lower your premium will be. This affects a short-term rental manager’s level of financial responsibility when a claim is made.

With a lower excess, insurance carriers shoulder more of the financial responsibilities, and the premium payments are usually higher. The higher payment requirement balances out the risk insurers are expected to take.

What to Think About When Selecting a Short-Term Rental Excess

Short-term rental property managers should consider these matters when choosing their excess amounts.

Budget and Affordability

Expenses for a rental property’s business operations can add up quicker than you might expect. That’s why it’s important to think about which coverages you will realistically need and how much you’re willing to pay in monthly premiums.

Risk Tolerance

With all insurance policies, including short-term rental coverage, policyholders have to think about how much risk they are willing to take on. If you can’t take too much risk, you may decide to pay more in premiums so the excess is lower. 

In contrast, perhaps you can handle more risk and have enough resources to pay out-of-pocket changes. As a result, you might opt for a higher excess and lower premium payments.

Claim Frequency

Some rental properties experience more damage than others, and each incident requires an individual claim. Properties in high-traffic areas and frequent occupant turnover may endure more damage and see multiple claims filed. 

If that’s the case, it may be wiser to take out a policy with a lower excess. Rental properties that don’t go through such a high number of claims may choose higher limits instead.

Claims Process

When a rental property manager files a claim, the insurance carrier has to approve the payout. If approved, the policyholder is advised on how to remit the excess and what party to pay. 

After that, the carrier pays out the remaining balance up to the agreed coverage limits. If the manager or insurer estimates that coverage will exceed the limits, the manager must either pay out-of-pocket or take out a separate insurance policy to handle the overage.

Other Factors That Affect Excess and Premiums

Several other factors may also come into play when setting a short-term rental insurance excess. These include the following:

• Age of the property
• How the facilities were constructed
• History of claims in the area

CoverCat: Focusing on Short-Term Rental Managers’ Insurance Needs

CoverCat specialises in short-term and vacation rental properties and the managers who oversee them. In addition to insurance, we offer assistance in guest verification. Contact our team to learn more.